Ltc insurance? no longer a given

For clients entering retirement this is often the most daunting concern: How to guard against a financially ruinous health-care crisis, over and above the already staggering cost of health insurance.

It’s a fear based in reality. Fidelity Investments estimates that the average couple retiring in 2013 will spend about $220,000 on medical care. Meanwhile, almost 70% of people age 65 will eventually require some level of services to meet their personal care needs over an extended period of time, according to the Centers for Medicare and Medicaid Services.

But while clients can purchase long-term care insurance to protect themselves, “companies can stop selling certain products a or keep raising their premiums, and you have to look carefully at the issuer to make sure they’ll still be in the long-term care business when you need them,” David Blanchett, head of retirement research at Morningstar Investment Management, said in an interview earlier this month.”

Moreover, two-thirds of those older than 65 require less than two years of formal paid long-term care services, according to the SCAN Foundation, a nonprofit charity that addresses healthcare issues for seniors.

The poor utilization and growing risks associated with long-term care insurance, are leading a growing number of financial planners to recommend alternatives to their clients.

Carla Masselink, senior vice president for investments with MKS Wealth Advisors, suggests purchasing a new type of insurance known as a combination policy. Combinations are sold as life insurance but can be applied towards long-term care. Such policies will cover a year or two of nursing home care, or a longer period of in-home care, but will pay out the unused principal as a death benefit to the client’s heirs. An added benefit is that they are usually guaranteed against rate increases.

While not dismissing the need for traditional long-term care insurance, Maureen Whelan, a fee-only planner with offices in Garden City, Croton on Hudson and Tarrytown, N.Y., says high costs and lifelong premiums make purchasing these policies a case by case decision.

Many of Whelan’s clients depend on modest pensions and social security, “and if they need full-time care and don’t have any assets to protect,” she says, “it won’t take them long to qualify for Medicaid.”

But if someone can afford it, Whelan recommends that they purchase at least a minimal long-term care benefit. Given that most situations where people require long-term care develop gradually, she notes that “even a small benefit can be useful at some point.”